What Does “But” Really Mean? Evidence from Managers' Answers to Analysts’ Questions in Conference Calls

• In Event: Financial Accounting and Reporting 2

Abstract

This study explores how managers provide useful information to investors during conference calls to help them understand earnings news in the managers’ answers to analysts’ questions. Based on the linguistic literature, I use a self-constructed dictionary to count managers’ use of contrastive words (words that introduce corrective and/or unexpected information) to measure disclosure quality. The results indicate that disclosure quality is significantly positively associated with the extent to which investors react to earnings news after controlling for other qualitative and quantitative information. I show that the use of contrastive words adds explanatory power to the unsolved phenomenon that share price react positively to unfavorable earnings news. In addition, by separating disclosure content before and after the contrastive word “but”, I also find that disclosure after “but” is more informative than disclosure before “but”, which suggests that there is variation in disclosure quality within the disclosure content.

Authors

• Ke Xu, Rutgers University - Newark

• Dan Palmon, Rutgers University - Newark